China is frantically trying to apply the brakes to its runaway steel juggernaut. Targets are being set for capacity closures, 45 million tons nationally this year and 100-150 million tons over the next three to five years.
Regional governments are heeding Beijing’s call. Yunnan province, for example, has committed to eliminate 4.5 million tons of capacity by 2018. Local authorities are being urged to crack down on energy usage in the sector with those that fail to meet efficiency targets facing forced closure if they cannot improve.
A drive to consolidate the country’s fractured steel production landscape has begun with Baosteel, the second-largest Chinese operator, being pushed into a forced marriage with its smaller and financially weaker peer Wuhan Iron and Steel.
Beijing, in other words, is using all of its centrally-controlled levers to try and reform the sector. It has good reasons to do so. Steel and coal, another sector earmarked for “supply-side reform”, are not only littered with non-performing “zombie” operators but major obstacles on the path toward a greener future.
But the palpable sense of urgency is being dictated by the growing international pressure on China to halt its surging steel exports. A failure to produce results is going to ignite an already smoldering trade war with other global powers.
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